I added some shares of Sharps Compliance (SMED) earlier this quarter. The company provides disposal solutions for medical waste. Trailing earnings look great for the company, but this is largely due to a front-loaded government contract. The real question is whether or not the company can add additional contracts to maintain its momentum.
Sales are growing impressively under the one-time noise, and management believes they have over $20 million in pipeline deals with pharmaceutical makers alone. The government contract win led to both a supply schedule contract with the General Services Administration (GSA) of the U.S. Government, as well as a Distribution and Pricing Agreement (DAPA) with the Defense Department. These agreements effectively “grease the wheels” for more government work, a significant opportunity. Almost immediately after these were announced, Sharps launched a pilot program with the Veteran’s Association (VA) to collect their medical waste in the Mid-Atlantic region.
I peg Sharps' non-contract earnings at about $0.50 per year. At this earnings rate, shares are priced at about 15x earnings. This seems to be a relatively stable price. I view the company as very speculative at this point, but the story is certainly worth watching. As MagicDiligence concludes:
Growth potential is very strong, possibly explosive, and we’ve already seen how higher sales levels lead to much higher profit margins due to the firm’s fixed cost structure.
Disclosure: I currently own shares of Sharps Compliance